Credit Card Debt



1. Credit cards are offered with strict underwriting guidelines.

False
Eligibility is determined by a rating or score. Many consumers end up with debt because, although they have little income, they are allowed to open several credit cards. Even if a consumer is approved for several accounts, they should be used with caution to avoid large debts. Debt management is very important in keeping a good score or rating.


2. Banks do not know how much credit a consumer has.

True
The approval process is a streamlined process. The banks may extend credit beyond what is reasonable for consumers. By allowing them too much, consumers can often end up with credit card debt. Debt management should be completed before the situation becomes out of control.


3. Credit cards are under a revolving payment plan designed to keep consumers in credit card debt.

True
Companies are structured to keep consumers paying off accounts for a long amount of time. This results in more interest being paid during the payment period. For most rates and balances, it would take up to 30 years to pay off a credit card debt if only the minimum monthly payments are made each month. This is something that individuals need to be aware of. If payments are allowed to get out of hand, financial problems can quickly add up. Bankruptcy is sometimes the only answer when bills reach to the extreme.


4. Consumers using credit cards spend less than if they were using cash.

False
Financial statistics show that consumers spend about three times more on accounts than if they were using cash. Banks make using these accounts much more appealing, raising the limits, and easily approving consumers. Also, the more a consumer uses this option, the higher their limits are. As spending continues to increase credit card debt, debt management is more and more necessary.


5. A wise man saves while the foolish man gets himself into debt.

True
Proverbs 21:20 - There is treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up.


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